From a Keynesian point of view, which is more likely to cause a recession: aggregate demand or aggregate supply, and why?

Understanding the concept of aggregate demand is crucial in comprehending economic fluctuations like a recession. It encapsulates the total demand for all goods and services within an economy at a certain price level over a specified period. What loads aggregate demand? It's a blend of different economic actors' spending, including individuals, businesses, government, and foreign buyers. More specifically, aggregate demand is the sum of consumer spending, investments, government expenditures, and the difference between exports and imports, which is net exports.

Let's dive in further. An increase in aggregate demand is generally expected to boost economic activity, leading to job creation and higher production to meet the increased consumption. Conversely, a fall in aggregate demand can lead to a decrease in economic output. Companies will scale down production, possibly leading to layoffs and higher unemployment, which is a well-known precursor to a recession.

On the flip side, aggregate supply symbolizes the total supply of goods and services that businesses are ready to provide at a particular price level. It's influenced by various factors such as resource availability, technological advancements, and production costs. Think of it as how willing and able businesses are to respond to demand. If there's a drop in aggregate supply due to, say, a natural disaster or increased production costs, it might not immediately hamper economic output. However, this can prompt inflation, as fewer goods available often leads to higher prices.

Subsequently, such cost-induced inflation can suppress consumption by eroding purchasing power, indirectly affecting aggregate demand. While Keynesian theory posits that in the short term, aggregate supply isn't the first domino to fall in triggering a recession, it acknowledges that sustained supply issues can indeed spiral into a downturn by first touching off inflationary pressures.

The term economic activity is a broad umbrella that includes all actions that involve production, exchange, distribution, and consumption of goods and services in an economy. It's the heartbeat of a country's economic well-being. When economists talk about economic activity, they're often looking at indicators like GDP growth rates, unemployment levels, and production capacity utilization.

High economic activity is characterized by robust job markets, bustling factories, and vibrant consumer spending. On the contrary, when economic activity stalls, you'll see factories idling, job postings drying up, and consumers tightening their belts. It's a cycle: reduced spending results in reduced production, further resulting in increased unemployment, in a vicious feedback loop that can lead to recession.

The magic behind Keynesian economics lies in its focus on demand as the driving force for economic activity. British economist John Maynard Keynes introduced this theory during the Great Depression, laying out an argument that active government intervention could help avert economic downturns. How? By manipulating fiscal and monetary policies to stimulate aggregate demand.

In Keynes’s view, during a recession, the private sector often cannot or will not spend enough to keep the economy running at full throttle. That's when, according to Keynesian theorists, the government should step in, increasing its spending, cutting taxes, or both to jump-start demand. Today, Keynesian principles often guide economic policies worldwide, especially in times of crisis, as they provide a roadmap for governments to intervene and mitigate the impacts of a recession.